Professional Documents
Culture Documents
Issue : 3
CONTENTS
ARTICLES
SURVEYS ...............................................................................................................................................35
FICCI Economic Outlook Survey July 2010
l
FICCI Quick Survey on Yuan Exchange Rate Flexibility – July 2010
l
FICCI works closely with the government on policy issues, enhancing efficiency,
competitiveness and expanding business opportunities for industry through a range of
specialised services and global linkages. It also provides a platform for sector specific
consensus building and networking.
Partnerships with countries across the world carry forward our initiatives in inclusive
development, which encompass health, education, livelihood, governance, skill
development, etc. FICCI serves as the first port of call for Indian industry and the
international business community.
PREFACE
In its role as a facilitator, FICCI has always been at the helm of affairs of
pertinent economic and policy issues. To carry forward our endeavour
of being an integral part of policy affairs and value added resource to
our stakeholders, it gives us immense pleasure to bring to you the third
issue of our widely circulated and appreciated Banking and Finance
Journal. Eminent people from various industries contributed towards
the success of our last Issue and expressed their views on finding ways
and means for meeting the funding needs of the Indian Economy.
Current issue of our journal aims to bring to the forefront perspectives of experts from India
Inc. and financial sector intermediaries on 'Indian Financial Markets-2020'. The Banking and
Financial Services sector over the years has seen keen participation from domestic and
foreign fronts; this sector has played a vital role in partnering growth over the past two
decades by effectively intermediating funds for the capital expenditure requirements,
channelizing domestic savings and inducing capital flows from the developed markets to
India. Going by the trend, financial markets will be a key pillar for growth, fuelling the Indian
economy. Through the voice of some of India's leading names of financial sector, this issue
reflects on the pending reforms and future road map of Indian Financial sector over the next
decade.
We thank our partners MCX for extending their support to help achieve our endeavour.
We do look forward to views and suggestion from the readers to help us improvise the
content of the journal and make it more relevant and informative.
Dr Amit Mitra
Secretary-General
FICCI
ARTICLES
The financial sector will A brief overview of developments in increasingly important role in raising
evolve in tandem with the the financial sector might help risk capital for India's substantial
provide some perspective to our investment and acquisition needs.
transformation of the real
thoughts delineated below. India has Continuing process reforms have
economy a high savings rate, approaching or created a robust and efficient
It is always challenging to divine the surpassing those of Asean countries, infrastructure for equities trading,
shape of things to come: unmet providing access to a stable source of clearing and settlements. Amongst
needs, new technologies, consumer funding. At the same time, India's other financial segments, one of the
preferences and, most importantly, financial sector remains most visible transformations
the spirit of innovation and predominantly bank centric, inter alia following these reforms was the
enterprise. Fortunately, the contours due to debt markets not having development of the life insurance
of the evolution of the financial sufficiently matured and deepened. industry, which responded to
sector might be somewhat more The banking sector, the predominant customer demands for highly
amenable to description; In India, provider of debt finance, has grown customised products and prompt
these are likely to be shaped by the commensurately, at a CAGR of 19 service.
fundamental drivers of economic and percent over 2004 to 2010, and is
social developments. increasingly profitable and efficient.
It has managed to contain a
One of India's key economic strengths moderate deterioration in asset
is a dynamic financial sector, which quality, even while passing through
has played a vital role in partnering one of the worst downturns in recent
growth, effectively intermediating memory.
funds for the capex required. This
interaction will rapidly increase, with However, given the increasingly
funding and credit lines being vital for complex financing structures for the
initiating and sustaining economic funding profile of India's corporates
expansion. Rather than dwelling on capex needs, many capital markets
the financial sector, particularly the segments have emerged or have
banking industry, per se, this article transformed, as has access to global
attempts to envision some changes in capital pools. Equity markets, in
the real economy that will define the particular, have played an
contours of the financial sector.
Even as India's knowledge based will change, becoming more large domestic savings pool. New
industries continue to expand, the complex, with the consequent need participants will emerge and existing
improvement of India's rankings in for more effective mitigation. This ones transformed. Overall, it is likely
many global manufacturing will require the introduction of a that lines demarcating lines between
competitiveness surveys are a pointer whole range of hedging tools and the various segments of the financial
to developing potential for increased derivatives instruments for fixed sector will blur, despite the
manufacturing activity. At the income, currencies, equities and implementation of proposed global
forefront of this will be the SME commodities markets. financial sector reforms.
sector, from where much of the
Greater market orientation will also Finally, there is the issue of
innovations and efficiencies are likely
imply volatility in household incomes regulation and oversight of this
to emerge, and will be a significant
as one of the side effects, complex financial architecture.
financing opportunity.
necessitating increasing use of Through a combination of
A progressive improvement in insurance and pension products. The experience, insight and intuition,
infrastructure facilities has been insurance and pension segments will policy authorities have managed to
partially responsible for the increasing be crucial not just for increasing steer India's economy through the
competitiveness. Although much social security, but are also likely to worst financial crisis on a relatively
remains to be achieved, there has emerge as a catalytic factor in even keel. Even more notably,
been a steady improvement in development of long term debt despite the introduction of new
capacities, which are likely to markets in India, a crucial feature for financial products, the adoption of
continue with the progressive the massive financing needs for risk management practices by market
enabling of appropriate pricing and infrastructure projects. participants, combined with
market structures regulations requiring stringent
How might the role of banks change
solvency margins and adherence to
5. Transactions will become in this context? Even as bond
prudential norms, enabled the
increasingly market oriented, markets mature, and it will probably
financial sector to withstand severe
changing the risk profile of be some time before they sufficiently
business and liquidity shocks.
economic activity, necessitating deepen, banks will continue to play a
new risk management products: dominant role in financing the large To sum up, India will be one of the
capex needs of infrastructure and most significant contributors to
The above developments will result in
corporate investment. In addition, global growth over this decade.
an increasingly market oriented
banks will be the main channel for India's financial sector will be a key
economy, where the profile of risks
intermediating and aggregating the pillar for this growth.
Indian Financial
Markets-2020
Mr. Amit Chawcharia
Director,Global Markets, Citi, India
India: Current Scenario fairly liquid currency market on the development. Only a very limited set
Over-The-Counter (OTC) platform. of Interest rate derivatives product
India is already a trillion dollar The existing Financial Infrastructure are currently available and mostly on
economy ranking amongst the top in the form of efficient exchanges, the OTC. We have a relatively
Countries in purchasing power terms clearing infrastructure, stringent nascent organized Commodities
and growing at a very rapid pace. regulations around banking, financial trading but growing at a rapid pace
Financial Markets in India is probably disclosure norms and corporate through the exchanges mechanism.
one of the few infrastructure areas governance stemming from a sound This is in itself a sea change from the
where India can feel proud of and legal system based on common law unorganized localized mandi trading
compare itself with the best in the principles, makes us as one of the that exists in most parts of the
world. The Banking and Financial attractive emerging markets that can country today.
Services sector has seen a good mix facilitate investments from both
of domestic and foreign Some of the problems being faced by
domestic and foreign investors. We
participation. A lot of development the Indian economy include high
also have an economy with very
in the financial markets that has inflation, growing employable
robust savings rates of 35% that
facilitated this growth can be traced leads to a healthy Domestic Investor
back to the post '91 reforms. So in a appetite for funding the capital
sense these developments are fairly market needs. This is also helping us
recent and that helps us in not having as a country to mitigate some of the
to deal with too much of legacy problems associated with the global
issues that are probably plaguing financial crisis linked to over
some of the developed markets. leverage, high dependency on
We have a fairly developed and liquid foreign capital and associated
exchange traded Equity Markets that vulnerability of domestic currency.
offers a world class trading and The Corporate Bond segment is still
clearing platform. We also have a at a nascent stage and needs a lot of
population without adequate job agreement to cut down fiscal recovered strongly. This has helped
opportunities, high fiscal deficit and deficits by 50% by year 2013 to improve global demand
low tax to GDP ratio. conditions. But inflation and capital
Move toward exchanges & central
l
inflow pressures leading to sudden
Global markets scenario counterparty / clearing houses
currency appreciation pressures and
from OTC and thereby mitigating
monetary shocks in many of these
The Developed world is recovering counter party risks and increasing
economies including India are now
from an unprecedented financial standardization and transparency
raising difficult policy dilemmas.
crisis that not just eroded financial of financial products in world
capital but also shaken Sovereigns wherein the derivatization of all India implications for the
and investor confidence. This is asset classes and even abstracts
next decade:
leading to major Financial Reforms including yet-to-be-released
including some of the following: Hollywood commercial cinema is The foresight of our Regulators and
happening. the measured policy making has
US Congressional negotiators have
l
helped us avoid some of the above
approved the most sweeping Basel norms (BIS) - The Basel
l
problems that are plaguing the global
overhaul of U.S. financial Committee is well advanced in its
financial markets. There is now a
regulation since the Great preparation of regulatory reforms
need to prepare India for the next
Depression, reshaping oversight of addressing the core elements of
decade. Global economic order
Wall Street. Lawmakers are bank soundness - capital, liquidity
would change towards the now so-
working at restricting proprietary and leverage.
called emerging economies - these
trading by banks and oversight of
Compensation models of financial
l economies will have a lion's share of
the derivatives market;
firms changing to encourage growth in the next many years and
The World is getting together to
l calculated risk taking probably would be amongst the top-
agree on financial hygiene tier economies. China and India
Over the past year, growth in many
reflected in the recent G20 would be amongst the forefront.
emerging market economies has
GRAPH DEPICTING % GDP SHARE OF INDIA & CHINA- PAST, PRESENT & FUTURE
Source: CIRA estimates based on data from Angus Maddison, 2001, The World Economy: A Millennial Perspective, and, "The west and the
rest in the world economy: 1500-2030"
Some of the expected developments across various financial deciding the investments based
in the Indian markets include instruments with differing risk on its merit.
profiles and tenor
Corporate sector becoming global
l Consolidation of existing series of
l
and is aspiring for much more Financial inclusion is a must to
l Government bonds to improve
growth in scale and complexity. tackle growing income disparity, liquidity and facilitate better price
That would require a much larger rising unemployment, to avoid discovery
sized financial intermediation and social unrest and associate issues.
Linking of small savings interest
l
accordingly the scale and risk
These would require changes in the rates to variable market
appetite of Indian financial
regulatory framework on one hand benchmarks. Even the banks
Institutions needs to grow as well
to support such growth while on the would need to get the flexibility of
to keep pace.
other hand prevent the kind of offering more than vanilla
India needs to pay attention and
l excesses seen in the developed deposits i.e., structured deposits
do a war-footing execution in the markets. linked to variable market
physical Infrastructure space. This benchmarks viz foreign exchange,
The resultant implications and
is already being a bottleneck for equity indices or commodities.
shaping up of the major constituents
industrial growth and causing This will also give a wider segment
of the Indian financial markets is
every day issues for the residents of society access the capital
attempted to be captured below:
of the country both at rural as markets indirectly;
well as urban centers. Be it Fixed Income Markets
Need for a special hybrid debt
l
transportation for people or
Expansion of Corporate Bond
l instrument that will change the
movement of goods, power for
markets: Required changes that standard risk-return paradigm; For
industry and domestic
can lead to the expansion of the example: a long term
consumption, housing or even
Corporate Bond market would be infrastructure funding need could
providing safe drinking water for
- means to off-load credit risk, be funded through a hybrid debt
residents - a lot needs to be done
uniform stamp duty, screen based instrument wherein the interest
and all these infrastructure
trading, clearing house amount could be linked to the
creation would need lot of
settlement; increase in secondary
financing of a different nature and
market activity and thereby assist
magnitude along with a Public
in transparent price discovery and
Private Partnership (PPP) model.
avenue for early exits for investors
It would be pertinent in that light
and consequently also lead to
to have a financial market that will
more Issuers of long tenor debt
support the infrastructure funding
requirement of this nature and Gradual relaxation of investment
l
size. restrictions and forced rule based
buying on long-term investors
Financial intermediation by
l
such as insurance companies,
channelizing the growing savings
pension funds and Banks. This will
of the domestic population to the
give the required flexibility in
funds-hungry corporate sector
performance of an existing equity / l Hitherto we have largely been a advanced set of investors chasing
infrastructure index benchmark or net receiver of foreign capital; a differential risk-return profile.
linked to inflation however there is tremendous
Role of program / algorithm
l
opportunity for domestic money
Foreign Exchange /Currency markets trading is expanding thereby
flowing out to chase global
making the underlying markets
l Regulations need to be more opportunities. Further
more liquid and to facilitate this,
relaxed - capital account liberalization in this space
execution cost needs to be
convertibility to be implemented required to provide Indian
reduced further - both from
further both for inward receipt of investors the choice and taste of
trading platform providers as well
capital as well as outward flow of global opportunity and associated
as various state levied duties or
capital, relaxation of FDI in diversification benefits.
central government levied taxes to
insurance and other restricted
l With US $ is losing ground as the encourage the growth and
sectors thereby increasing access
world's reserve currency, India has associated liquidity in the
to more intellectual capital and
be prepared to manage its Fx markets.
associated products and
reserves in a more productive
efficiencies The investor participation is fairly
l
manner.
shallow considering the size of the
l Risk management tools in
Equity Markets economy. Both direct as well as
Currencies including Fx Derivatives
indirect investors through Mutual
need to be made more flexible to While we have an efficient
Funds, Insurance and Pension
allow Indian companies access to framework for equities trading on
Scheme needs to be further
same type of hedging avenues as the exchange in the form of liquid
promoted. We have the
are available to their competitors cash and Futures & Options on
advantage of high savings rates
globally. Banks, as providers of primary indices and large cap stocks,
that if channelized properly can
these products, will have to play a we still need to further the equity
become a measured and
very important role in this process derivatives space in a measured
consistent source of capital. This
to ensure that while the growing manner. The general educated urban
corporates access these population in India is quite familiar
instruments to better manage with equities and has a long tradition
their risks they should not of equity trading.
succumb to some of the mistakes
l Supplementing the existing
committed by their global peers.
standardized exchange-traded
l Exchange traded currency products with some more
products need to be expanded to customized and innovative
provide ease of access, products; there is possibility of
transparent pricing and alternate having more sophisticated and
risk management & trading tools bespoke products including third-
to retail as well as institutional party warrants and hybrid capital
clients. market instruments getting listed
on the exchange platform for the
commodities in a big way. A lot of size and associated benefits are change the way our rural economy
investors will be chasing inflation enormous. The existing postal functions.
adjusted returns and commodities network should also be harnessed to
Tax reforms: Currently, only a small
can provide the necessary give effect to this goal.
percentage of population is paying
underlying benchmark.
Based on a recent published taxes. There is a need to have a
Global warming will become a
l statistics, there are more people on simplified, less burdensome and
much more serious consideration the social networking sites than on stable tax regime for stake holders to
in the next decade; Emission our national depositories i.e., there take a balanced decision. Multiplicity
reduction and energy sufficiency are 31 million social networking of bilateral treaties leading to
consideration will evolve and grow individual accounts Vs only 17 million preferential treatment to investors
multi-fold. An economic platform demat accounts holders - there is coming from certain geographies
to monetize and support this clearly a emerging class of individuals may not remain. Tax compliance
change including carbon trading, who would be looking for financial should increase multifold with the
funding of alternate fuel projects, products simplification of rules, technological
etc would be required. progress and implementation of UID.
Technological changes are
Government needs to show judicious
Others unpredictable but one can safely say
use of tax money and bring in more
that the world will not be the same
Banking - India needs another green accountability to reduce / eliminate
as it is today and the pace of change
revolution - this time of a different corruption and increase tax
would be much faster than what we
kind i.e. financial inclusion that compliance. The Direct Tax Code
have experienced in the past decade.
includes providing access to banking implementation, uniform Goods &
Technology can change lot of things
& financial services to the entire Services Tax (GST) and rationalization
for example, the biggest competition
population. We need to ensure that of subsidy - oil price decontrol are
to camera makers today are not from
banking both in terms of channelizing steps in the right direction. Over the
any other camera maker but from
of savings as well as availability of next 10 years, given the right political
mobile manufacturers like Nokia!
credit to the majority of our people. will, it is not difficult to envisage a
Similarly one can expect healthy
This is a challenge worth taking for scenario where subsidies are
competition amongst the various
the banking sector as the opportunity reduced to bare minimum and get
money channelizing agencies
replaced with direct financial
including Banks, Asset management
assistance to the needy sections of
Companies / Mutual Funds and
society, tax base widens to entire
Insurance Companies. Maybe the
earning population and fiscal deficit
telecom operators become the
gets converted into a surplus
biggest distributors of financial
products. There is a huge scope to Unique Identification would be a
use technological progress to expand great enabler including ensuring
the reach of financial products to the financial inclusion, tracking of
masses in a low cost scalable beneficiaries of various government
manner. Mobile / virtual banking if assisted programs / subsidy; checking
deployed by the financial sector can corruption & misuse of resources;
containing credit losses of financial favorable demographic profile, India certainly lead us to become a global
institutions, immigration control, shall be the leading consumer and a financial center for intellectual
social security and electoral reforms. large trade partner for the world. We capital.
With this data mining in place a lot of shall have many of the home grown
Lastly, am intentionally not
strategic policy level initiatives can be global corporations providing world
pronouncing or making any
focused and channelized for the class products and services. By
predictions on the expected interest
general good of the society and avoid creating a Rupee symbol we have
rates, $-Rupee levels or the Sensex
pilferage and misuse. already included ourselves amongst
as I guess will leave that to the
the very few global currencies to
India is already a trillion dollar Octopus and the Parrots of the
have a unique symbol. This will go a
economy and looking to grow multi- world! Their vision seems to be
long way in building brand-India. One
fold in the next decade. India is on 20:20.
advantage India possesses that is
the agenda of all meaningful
probably second to none is that of Look forward to India playing a more
financial services firm globally and its
having one of the most educated, meaningful role in the Global arena
importance shall only rise in the
english-speaking youthful supported by a comprehensive and
years to come. With a strong
demographic profiles and a good mix robust financial markets platform.
domestic consumption story and
of entrepreneurial talent. That can
Her international engagements include being a non executive director on the board of Nestle SA, Chairman City of London's
Ms. Naina Lal Kidwai Advisory Council for India, Global Advisor Harvard Business School. She is on the Governing Board of NCAER, Audit Advisory
Group General Manager Board of the Comptroller and Auditor General of India, and on the National Executive Committee of CII and FICCI .
and Country Head
HSBC, India Ms. Kidwai has been repeatedly ranked in the Fortune global list of Top Women in Business, in the Wall Street Journal and
Financial Times Global Listing of Women to Watch and listed by Time Magazine as one of their 15 Global Influentials 2002.
She received the Padma Shri from the Government of India for her contribution to Trade and Industry.
She holds an MBA from Harvard Business School.
Mapping infrastructure
investments for 9%
structural growth
Mr. Anup Bagchi
Executive Director, ICICI Securities Ltd
(Rs crores) Budgetary Proportion Internal Proportion Borrowings Proportion Total Proportion
Resources generation
Composition of Budget Resources, Equity and Debt in total investment plan ( Rs crore)
Budgetary Resources ( Central+ State) 644671 31.4%
Internal Generation/Equity 423444 20.6%
Borrowings 988035 48.1%
Total Requirement 2056150
The equity portion i.e. is the risk capital formation which is estimated commitments within 3 years of the
capital will be mainly contributed by at $147bn. So the private sectors eleventh plan period. However,
the government which stands at 56% contribution in the total infra overall infra achievement may not
and remaining 44% will be investment is expected to reach to happen as planned as we are already
contributed by the private sector. This 30% by FY12 from the current 17%- seeing slippages in investments as
means that private sector going 18%. In terms of targets the private has been the case in power which
ahead will be one of the prominent sector investments have already forms 1/3 of the infra spend.
sources of risk capital for incremental reached 61% of their targeted
FII High Require more long only funds which commit capital
for long period of time
On the debt side the main source of financing for 11th plan infrastructure investments will happen via bank credit
(51.3%) followed by funding from specialised NBFC's (23%) and ECB's (12.4%).
The stock markets/equity funding L&T, TATA's and few NBFC's have should intensify. Therefore the
alone cannot make the capital been tapping these markets with question is not the quantum but the
markets of any country globally attractive rates of return) to develop ability to drive liquidity through
competitive as stocks markets cannot this market but how soon it becomes proper market platform. There is
suffice the financial needs for a reality is a key question so that definitely a need for intermediation,
corporations and the economy. What debt capital is available at the right instruments and markets that can
Indian market is lacking is a vibrant time, at the right cost and without perform that can function according
debt market particularly in the creating a demand supply mismatch. to the risk, maturity and duration to
corporate segment. Though there are suit the needs of investors so as to
Though India is moving in the right
intentions and signs of some activity optimally utilise the funds available
direction we believe the pace of
happening in this (Corporates like at disposal.
reforms and infrastructure building
1 crore to 5 crore
investors: Opportunities
and Challenges
Mr. Praveen D G
Asst. Vice President, Research & Product Development, MCX-SX
closing of 3604 in the year 2000-01. markets. RBI has identified the connected electronically, they are
The growth in turnover is primarily importance of the role of private regulated, have data base of clients
contributed from cash settled sector role and private-public with KYC and have low operating
derivatives. partnership, and has been cost which makes them highly
considering more banking licenses to suitable for such financial services at
Indian markets are more equity
private sector players to achieve incremental marginal cost.
oriented and 70% of the total
expansion and sophistication.
turnover is in the cash settled equity The mutual fund industry also plays a
Currently 40% of India's population
derivatives segment. Equity and pivotal role in attracting retail
has access to banking through 80,500
equity derivatives in the US account investors to capital markets and has
branches. The RBI aspires to achieve
for just 13% of the market share ample scope to develop in India.
100% financial inclusion. Financial
whereas in India these are around There are around 40 AMCs offering
inclusion speaks about the ease of
86%. The capital market cannot be around 630 schemes giving large
access to various financial services in
said to be developed without active scope for investors with diversified
a cost effective manner to all sections
debt market. Unfortunately, the risk appetite and there are a total
of population. Lead banks have been
development in Indian debt market number of only 44.5 million investor
guided to provide banking services to
has never been impressive. So is the accounts or less than 20 percent
every village that has a population of
growth in bond derivatives market. In households holding mutual funds. In
2000 by March 2011. The central
the US interest rate derivatives contrast, in the United States, as per
bank has directed the banks to
account for 85% of the market share ICI/SIFMA survey, the overall equity
further the Business Correspondent
but they are almost absent in India. and bond ownership rate is around
(BC) model by using the services of
Bank borrowings of the corporate 47 percent of US households (54.5
local facilitators like storekeepers,
sector that stood at 11.3% in 1984 million), and about 43% of the US
retired teachers and army personnel
have on an average rose to 21.5% households owned mutual funds.
to reach the unbanked areas.
during the period 2001-02 to 2007-
Banks' and stock exchanges' role in
08. Similar to banks and insurance
development of mutual funds
companies, mutual funds and stock
Penetration of Financial market is crucial. The branch
brokers should aim to expand their
network of mutual funds is limited to
Services: Innovative branch and agent network for
Integration of Intermediaries furthering the cause of financial
inclusion. Akin to them stock
The penetration of the financial
exchanges which have long been
markets outside 5-10 major cities has
recognized as financial infrastructure
remained very poor. Collaboration
companies have to definitely build a
among market intermediaries like
stronger member network.
banks, exchanges, mutual funds,
Introduction of more fee based
brokers and insurance companies
services, innovative products can
would go a long way in expanding
result into a win-win situation for the
investor base.
economy. Brokers of exchanges can
The banking infrastructure can be provide the much needed low cost
used adequately to grow the financial penetration as they are already
few cities and exploitation of banking Use of Technology to Multiply have significantly improved and
network is necessary for the Financial Services widened. A similar success is
penetration of mutual funds in rural necessary for the wholesome
Technology has demonstrated its
areas. Recognizing the stock development of capital markets in
potential to make investing and
exchanges' role, SEBI has allowed India.
trading activities easier, swifter, safer
online trading of open-ended mutual and cost efficient. With over 600 Need for a wider customer base
funds on stock exchanges, which are mobile subscribers, mobile based prompts introduction of new
connected with 200,000 broker trading has potential to stir a new products and services, technology
terminals spread across 1500 towns. trading revolution in the country. The advancements at competitive prices.
It is a welcome step that SEBI has introduction of internet trading has These benefits can accrue only if
relaxed its regulatory norms and has brought many changes in the trading competition is fostered. Competition
also eased KYC norms to attract more patterns of investors, and has added is encouraged in all quarters in
number of retail investors towards a large number of investors into the developed countries like United
mutual funds. Similar supportive and system. However, the penetration is States. The service providers need to
consistent policy environment would yet to see the potential. India has 70- be bolstered while focusing on
boost the MF industry. 80 million internet users while expanding reach. Contrasting to two
internet penetration rate stands at national level electronic stock
Financial market integration is 7% for a billion population as against exchanges in India, there are 11 SEC
absolutely necessary for penetration. 25% in China and Singapore, and 75%
registered national securities
The services of insurance agents (~ 3 in United States. This is alarming but
exchanges, 2 unregistered exchanges
million), stock brokers and banking it highlights opportunities to tap the and more importantly around 73
business correspondents may be untapped potential of internet active Alternative Trading systems
extended and be used to cross sell trading. The planned issuance of (which act as deemed exchanges) in
products and contribute to greater biometric based Unique United States. There are around
financial inclusion through Identification (Aadhar) cards will thousands of national commercial
integration. provide access to the hitherto banks in United States as against
underprivileged. hundreds in India.
form of fixed deposit. It is felt that Conclusion the country and drive 100% financial
guarantee mechanisms including inclusion. Intermediaries need to
bank credit default swaps can help The robust savings figures of the attract the new customers along with
investors to participate in issuances country reflect the potential to retaining the existing chunk.
by mid-tier corporate. However, expand the customer base from a Expansion of the customer base
credit default swaps are nearly crore to five crores given the savings implies that intermediaries strictly
missing from Indian market. Recent are channelized in the right direction. adhere to the dictate-"Customer is
indications from the RBI suggest that Consistent efforts by the government the king". This demands keeping
introduction of CDSs is being and regulators to foster an abreast of technology and
considered seriously. Besides, it is a investment climate that is conducive consistently innovating to bring out a
welcome step that repos have been and by the financial intermediaries to diverse range of products to suit the
introduced in the corporate bond go beyond the customary can herald customer needs.
market. a financial services revolution across
Disclaimer
The views expressed in this article are personal and do not reflect in whatsoever manner, those of MCX - SX
Indian Financial
Markets-2020
Mr. Sunil Godhwani
MD & Chairman, Religare Enterprises Ltd.
D emographic dividend
combined with a burgeoning
middle class already bigger
than the US population provides a
platform for India to become one of
trajectory will require a balanced
approach between mobilizing the
near dormant household savings
residing as deposits towards
productive investments and
structural changes in the industry
that are likely to craft the contours of
the Indian financial system.
composed of government bonds & branches even though 39.7% of the tool in providing access to banking
corporate bonds. However, the overall branch network of Indian products in remote areas at the
market is still overwhelmingly banks (31,727 branches) is in rural lowest transaction cost. ATMs cash
dominated by government bonds, India. Further nearly 80% of the dispensing machines can be modified
which account for almost 92% of the Indian population is without life, suitably to make them user friendly
market and form liquid component of health & non-life insurance coverage. for people who are illiterate, less
the bond market. The share of While life insurance penetration is educated or do not know English.
corporate bonds in GDP is merely 4%, non-life cover is even lower at
In this era of globalization, Indian
3.3%, compared to 10.6% in China, 0.6%. The per capita spend on life
banks are going to serve their
41.7% in Japan & 49.3% in Korea. and non-life insurance is just about
domestic, corporate & NRI clients in
With the expected regulatory reforms Rs 2,000 and Rs 300 respectively,
the international markets with
and setting up of a bond exchange in compared with global average at
increasing competitive pressures
India, we are likely to see a much least Rs 18,000 and Rs 13,000.
from their international peers. Indian
vibrant and developed bond market
Financial Inclusion is going to be a public sector banks will continue to
in India with strong participation from
necessary enabler towards equitable strengthen and be the dominant
both the retail & Institutional
growth. It will allow rural & semi players with the likelihood of further
segment.
rural sector to build savings, make consolidation. Indian banks will gain
Another important theme for 2020 investments & provide access to further prominence in the
will be focus towards financial credit. However addressing financial international arena as some of the
inclusion. Financial inclusion has long inclusion will require holistic leading public & private sector banks
been a challenge in India, where bank approach on the part of banks in will, like some Chinese banks,
transactions are mainly urban based creating awareness about financial emerge as global leaders. Foreign
and people living in rural areas rarely products, education, offering banks will become more niche
even have a bank account. Only 5.2% counseling on savings and credit. players and will increasingly focus
of India's 650,000 villages have bank Brick and mortar expansion of the more on the cross border products
banking system is going to find it like equity raising, debt raising, M&A,
difficult to reach large sections of the transaction banking support.
population purely for commercial
Technology will play a critical role in
reasons. Branchless banking as a
increasing penetration for a variety
concept will emerge very strongly
of financial services and products
and will over-take conventional bank
and will be the mainstay in
branches by either using information
facilitating the next wave of financial
& communication technology
services growth in this country. This
services or by forging linkages with
will largely be driven by improved
third party organizations like MFIs
accessibility and reduced costs.
(Micro-Financial Institutions) &
Considering India's mobile & internet
Business Correspondents.
penetration (active internet users)
Technology will drive innovation and
has grown significantly with already
especially mobile-banking
~617 million & ~60 million
technology can be a very valuable
subscribers respectively as on
June'2010, integrating mobile towards harmonization. On the studies, Indian GDP is expected to
telephony, into customer targeting domestic front, greater integration grow multifold. India finds itself at
will become extremely critical over among domestic regulators will be the centre stage of global interest
the time to come. Further, we are the natural course towards improved and growth. The financial sector as
likely to see increasing interaction via accessibility and investor confidence. part of this growth story finds itself
mobile based applications, as mobile at a critical juncture in India. The
Another important enabler that is
payments (e.g. e-money) will reduce various initiatives taken by the
likely to emerge will be an Indian
check transactions. Transaction costs Government to meet the challenges
Sovereign wealth fund. Even though
will see a significant drop as of a complex financial architecture
this has been a subject of discussion
technology plays an important role to have ensured that a new face of the
over the last couple of years, setting
reach customers cost-effectively. Indian financial sector is crystallizing
up a Sovereign Wealth Fund for India
into a strong, transparent and
We have already established a fairly could be an important channel to
resilient system. And even though a
robust regulatory system in place invest both in the local market to
sound and resilient banking system
through the various reforms over the bring financial stability and
and well –functioning financial
past two decades. In the wake of the confidence coupled with acquisition
markets have helped Indian economy
recent crisis, Indian financial system of critical global assets in sectors that
to rebound buoyantly and remain
has shown great resilience partly due are of significance for the Indian
largely resistant from the
to the prudent regulatory framework economy such as energy,
communicable effect of the global
and proactive response by the communication, defense and
meltdown, India cannot afford to be
regulators. Prudency and customer healthcare. Most developed &
complacent. Over the next decade,
protection will continue to be the emerging economies even in Asia
Indian financial services sector,
core agenda for the regulators. such as China, Singapore, and
supported by sound regulatory
However, the Indian regulators will Malaysia etc have established SWFs
decisions, promises to offer immense
need greater alignment with the from their current account surpluses
growth opportunities and will serve
foreign regulations, as increased and are actively expanding their
as key enabler towards reorienting
globalization introduces common national interests via this platform.
both domestic and global capital
vulnerabilities and increasing
The fundamentals of the Indian flows into Indian financial markets.
demands from foreign nations
growth story remain unchanged and Financial services 2020 will see the
by 2020 as suggested by many emergence and embedding of the
Indian Economy –
an update
inflation and anchor inflationary Greece, the Union Budget for 2010-
expectations, the Reserve Bank of 11 the government announced a
India (RBI) initiated the process of medium-term fiscal consolidation
calibrated exit from the plan. The 3G/BWA auction proceeds
accommodative monetary policy leading to unexpected gains of
stance much before other countries almost Rs. 1 lakh crores for the
of the world. With a near normal exchequer along with the
monsoon this year and an upcoming deregulation of petrol prices and
good harvest it is expected that the upward revision in prices of other
inflationary pressures will ease off petroleum products as well as robust
gradually. The downward trend in indirect tax collections are expected
inflation has already begun and most to somewhat ease off the stress on
estimates including those by RBI the government's fiscal situation.
project inflation to reach the level of However because of the additional the expected global economic
6 percent by March 2011. expenditure of Rs. 55,000 crore as outlook much worse than what it
reflected in Supplementary Demand was a couple of months back a
In response to the crisis and to
for Grants, the above developments durable global aggregate demand to
support the ailing economy, the
may not contribute much towards a sustain our growing exports seems
government and RBI deviated from
faster fiscal correction. uncertain. Recognizing the pressure
their fiscal consolidation path and
on export's sector due to adverse
undertook huge expenditures which It can be said that the global trade
global developments, the Commerce
were not planned and which resulted has contracted much sharply than
Minister Mr. Anand Sharma has once
in a high fiscal deficit for the global GDP during the crisis period.
again announced additional sops
economy. In view of the adverse Even in India's case the turnaround in
worth over Rs. 1050 crore for the
impacts of the high fiscal deficit export and import growth came
exporters in the recent Annual
which were particularly emphasized about only after a contraction for 13
review of the Foreign Trade Policy.
through the sovereign debt crisis in and 11 months respectively.
Despite considerable uncertainty
According to the latest figures, India
about the pace and shape of global
exports grew at a moderate rate of
recovery, the government is
13.2 percent in July 2010 while the
optimistic of achieving its annual
imports grew at 34.3 percent. The
export target of USD 200 billion by
lower growth rate of exports in
March 2011.
comparison to the 30-35 percent
export growth experienced during In the beginning of fiscal year 2010-
the last couple of months partly 11, capital flows to India had
reflects the base effect setting in. So moderated somewhat in response to
far in 2010-11, import growth has the sovereign risk concerns in the
largely exceeded the export growth, Euro zone. But given the strong
reflecting stronger growth growth outlook of the Indian
performance of India and its economy the capital flows have
sustained domestic demand. With revived and are expected to ascend
large investors from limiting their friendly measure as it would counter transactions made by
losses by way of paying a fixed fee allow investors earn interest on them in commercial papers (CP)
to their portfolio managers. NFO investments till its deployed and deposit certificates (CD)
by its fund managers. from August 16 to make these
8. To bring greater transparency in
transactions more transparent.
the fee structure and improve 10. The Securities and Exchanges
turn-around time for customer Board of India (SEBI) has allowed 13. In a move to usher in more
service processes, market exchanges to introduce currency transparency in disclosure of
regulator SEBI has amended four options on US dollar pairing with shareholding pattern by
mutual fund regulations and rupee, providing another companies, the Securities and
omitted one schedule. These alternative to corporates for Exchange Board of India (SEBI)
regulations pertain to offer hedging against currency has asked companies that have
period, allotment of units, refund fluctuations. In another move, it issued depository receipts to
of excess subscription, account also asked stock brokers, FIIs, classify them as either promoter/
statements and management fees asset management companies to promoter group and non-
chargeable by the asset report all over-the-counter promoter in their quarterly
management companies. The transactions made by them in disclosures to stock exchanges.
offer period for ELSS (earnings commercial papers (CP) and The SEBI board has also decided
linked savings scheme) have been deposit certificates (CD) from
brought down by 30 days. These August 16 to make these
will now be open for more than transactions more transparent.
15 days instead of 45. Fund
11. The market watchdog SEBI
houses are now expected to
shortened the period within
refund excess subscription money
which mutual fund schemes can
within five working days instead
be subscribed and refunds can be
six weeks. A failure to do so
claimed, a move that will
would start attracting penal
safeguard investors from market
interest at 15 per cent per annum
volatility. The Securities and
on the expiry of five working
Exchanges Board has slashed the
days.
calendar for availing of mutual
9. SEBI extended the deadline for fund schemes and seeking
mutual funds to implement the refunds, from 87 days to just 20
ASBA facility for new fund offers days now.
(NFO) to October 1. Earlier in
March, SEBI had kept the
deadline of July 1. ASBA is 12. Market regulator the Securities
currently in place for IPO and Exchanges Board of India
subscribers in the equity market. (SEBI) today asked stock brokers,
ASBA facility is an investor FIIs, asset management
companies to report all over-the-
up and sent to key economists for Annual Forecasts for 2010-11 growth - 2.6 percent (Q1, 2010-
their inputs and views. This time 14 11) and 4.0 percent (Q2, 2010-11)
l GDP growth - 8.5 percent
economists of repute participated in Industry growth - 11.0 percent
l
the survey. l Agriculture and allied activities
(Q1, 2010-11) and 10.0 percent
growth - 3.5 percent
The economists were asked to (Q2, 2010-11)
provide their forecast for key macro l Industry growth - 10.0 percent
Services growth - 9.2
l percent (Q1,
economic variables for the year 2010- l Services growth - 9.0 percent
2010-11) and 9.1 percent (Q2, economists believe that while the overall agricultural
2010-11) recent IIP numbers may have performance may not be 'too
shown a decline from 16.5 percent strong' as overall soil
IIP - 13.1 percent (Q1, 2010-11)
l
in April 2010 to 11.5 percent in productivity is now on the
and 11.0 percent (Q2, 2010-11)
May 2010, such a growth is still lower side. Further, if less
WPI inflation rate - 10.0 percent
l reasonable and may not dissuade rainfall can impact
(Q2, 2010-11) RBI from restricting monetary agricultural output, excessive
policy action. rains and subsequent floods
Money Supply (M3) growth - 15.8
l
too will be a negative
percent (Q2, 2010-11) Though the above is the majority
development. Some of the
view, a few respondents opined
Trade Balance - (-) 8.0 percent (Q2,
l northern states are already
that given the moderation in IIP
2010-11) seeing floods and this will
growth and the expected
have a bearing on agri
USD / INR exchange rate - Rs.
l slowdown of inflation in the
output.
46.0/USD (Q2, 2010-11) coming months, a further rate hike
by RBI during the policy review Two, inflationary situation.
n
Bank credit growth - 19.5 percent
l
appears unlikely at this juncture. The headline inflation
(Q2, 2010-11)
They also feel that such frequent continues to remain
Economists' views on rate hikes could derail the growth stubbornly high. The recent
momentum the economy is fuel price revision will have
Expected monetary policy action
l witnessing presently. an inflationary impact in the
by the RBI. Majority of economists months ahead. Economists
feel RBI would continue to move Potential downside risks to
l
have pointed out that high
ahead on the path of monetary growth in 2010-11. Downside risks
prices are eating into the
tightening and anticipate a hike of to growth emanate from both
budget of the middle class
25 basis points each in the repo domestic and global
population as far as their
rate and reverse repo rate in July developments.
outlay for industrial produce
27, 2010. Given the present Domestic factors that could
v is concerned. Thus if inflation
liquidity situation, a hike in CRR on pull down growth include persists at the current levels
July 27, 2010 was however ruled for a long time or if there is a
out by the participating One, progress and spatial
n
sharper than anticipated
economists. distribution of the monsoon.
pick-up in inflation then
Data shows that cumulative
Surveyed economists feel non- consumption demand could
rainfall in the country
food manufacturing inflation is get dampened.
between June 1 and July 14
now rising at a fast pace and this was below normal by 13 Three, premature and
n
could be a source of worry for the percent. A less than aggressive monetary policy
RBI. Further, the full impact of the optimum monsoon would action. While normalization
fuel price revision on inflation adversely impact agricultural of the monetary policy is
numbers is yet to be seen growth. Even if the rains expected and RBI would
according to the economists. On were normal this year, continue to tighten rates in
the growth front, surveyed the months ahead,
premature and aggressive will get hit) and in turn affect Although inflation would after some
rollback of easy money policy GDP performance. time trend downwards, but a good
can jeopardize growth. Rapid number of economists expect that
Two, high commodity prices.
n
tightening of monetary policy by December 2010, headline
High commodity prices
will affect both consumption inflation rate would continue to be
including crude prices is also
and investment demand and in the range of 6 percent to 8
being seen a risk to India's
this could ease the growth percent.
growth in 2010-11 by a small
impulses.
set of economists. Looking at the prognosis for the two
n Four, social unrest leading to key components - primary articles
Inflation situation. Majority of the
l
output losses. Given the and manufactured articles - the trend
economists do not expect
recent pick up in naxal is expected to be the same as for
inflation rate to fall to the 5
activities there is a fear that overall inflation. The only difference
percent mark by end December
greater social unrest in times being that primary inflation will start
2010 as estimated by the
ahead may also lead to to cool down from July / August 2010
government. The general view is
output losses and thus impact onwards as the 'negative base affect'
that headline inflation would
the growth trajectory. will come into play then and
continue to remain around the
manufactured articles inflation would
External factors that could pull
l present levels for the next few
trend down from November 2010
down growth include months and then gradually trend
onwards as it was in November 2009
downwards. There are three broad
n One, uncertainty regarding when manufactured goods price
reasons which economists feel
global recovery. There are index had shown a spike. Besides this
would prevent headline inflation
evident concerns with regard base effect, some of the other factors
from coming down at least in the
to developments taking place that should help ease inflation later
next one or two months -
in the Euro Zone. Many this year include -
believe that the next shock to v Impact of recent hike in the
v Low probability of further high
the capital markets could fuel prices - Fuel price hike will
MSP hikes (Primary articles
come from evolving situation add to the transportation cost
inflation)
in the Euro area. This could for primary articles as well as
increase volatility in capital increase the input costs for v Slowdown in global growth
flows and restrict availability manufactured goods. which would keep a lid on
of funds for supporting commodity prices particularly
v Sticky food inflation - Spatial
growth. Besides Euro area, those of industrial metals
distribution of monsoon will be
economists are also skeptical (Manufactured articles
a key factor under watch here
about the direction of the US inflation)
economy. There is a slight v Depreciation of INR which is
chance, some believe, of US preventing any meaningful
economy getting into another reflection of lower global prices
recession. This, if it happens, in metals on inflation rate in
will put a cap on our export India
growth (services sector like IT
Seminar on IFRS:
September 2010, New Delhi
Indian Accounting Standards are to reporting transparency, better It is with this in mind that FICCI
converge with IFRS in phases comparability of performance and proposes to organize a conference on
beginning with the financial year reduced reporting requirements the subject matter with a view to
commencing 1st April 2011. While among others, the process also raises highlight and better understand the
there are significant benefits to be a few challenges in terms of the various issues of concern that could
gained from the process of 'carve outs' that need to be created, possibly arise as a part of this
convergence including greater as well as practical difficulties in the transitionary process in the coming
implementation process. months.
Positive Specification:
Print Area 11 inch (Height)* 8.25 (Width)
(Screen Ruling 150)
Issue : 3